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Flight Centre wins appeal, regains its money plus interest

August 3, 2015 Corporate, Headline News No Comments Email Email

egtmedia59If Champagne corks are popping at Flight Centre, there’s good reason. The retail travel agency group has won its appeal in the long-running competition law test case brought against it by the Australian Competition and Consumer Commission (ACCC).

On Friday, the six-year saga ended when the Full Court of the Federal Court of Australia overturned the judgement that was handed down against Flight Centre in December 2013 in relation to breaches of the Trade Practices Act 1974.

Flight Centre had been ordered to pay penalties totalling AUD 11 million in relation to conduct said to have taken place between 2005 and 2009. Friday’s judgement in Flight Centre’s favour means the AUD 11 million, plus interest, will now be repaid to Flight Centre and included in the company’s financial results for 2015/16.

In addition, the ACCC has been ordered to pay Flight Centre’s legal costs for both the initial case and for the subsequent appeal.

The decision of the Federal Court against which Flight Centre appealed had found that the travel company tried to induce anti-competitive arrangements with three international airlines to eliminate differences in international airfares offered to customers.

The ACCC had alleged that Flight Centre had attempted to induce a contravention of the price fixing provisions of the then Trade Practices Act 1974 (the Act), now called the Competition and Consumer Act 2010.

Flight Centre consistently rejected these allegations and presented evidence that its objective was to gain access to all fares that were available in the market. That argument has now been upheld and Flight Centre has been fully exonerated.

“We welcome today’s judgement and hope that it now brings this six-year saga to an end,” Flight Centre managing director Graham Turner said.

“As we said when the ACCC initiated this test case, for more than 30 years Flight Centre has sought to deliver cheaper airfares to the travelling public.

“The company is not in the business of attempting to make airfares more expensive.

“As an agent that provides considerable advice and help to the travelling public and extensive marketing for airlines, FLT [Flight Centre] asks for appropriate commissions from suppliers and also reasonable access to all deals that they release to the market.

“This is a logical and natural business request for an agent to make to ensure the customers it serves on behalf of airlines are not disadvantaged.

“Given that travel agents book up to 80% of international flights in Australia, it benefits consumers because it means special offers are not solely available from supplier websites.”

In a statement to the Australian Stock Exchange, Flight Centre said it was still considering the ruling and if appropriate would provide additional updates “in due course”.

In the initial case, which was heard in the Federal Court in 2012, the ACCC alleged that Flight Centre had engaged in conduct that amounted to attempts to control prices on six occasions between 2005 and 2009.

Giving background, an ACCC statement released on Friday said that in December 2013, “the Federal Court found that Flight Centre and certain airlines competed for the retail or distribution margin on the sale of airfares, and that on six occasions between 2005 and 2009, Flight Centre had sought to prevent certain airlines from undercutting it on international airfares.

“The Court held that this amounted to attempts to induce anti-competitive agreements. In March 2014 the Court ordered Flight Centre to pay penalties totalling AUD 11 million.”

The ACCC statement continued:

The Full Court allowed Flight Centre’s appeal, finding that there was no separate market for booking and distribution services to consumers, and as a consequence that Flight Centre and the airlines did not compete with each other in such a market.    Instead, the Full Court found that the supply of booking and distribution services was an ancillary part of the supply of international passenger air travel, in which Flight Centre acted as agent for the airlines.

As a consequence, the Full Court also dismissed the ACCC’s cross-appeal in relation to the size of the penalty ordered by the Federal Court.

Although the Full Court found that Flight Centre and the airlines were not in competition, the Full Court observed that the existence of an agency relationship between two parties does not always mean that those parties cannot be in competition with each other, as each case must be considered on its own facts.

ACCC Chairman Rod Sims said “the ACCC took this action because of its concern that Flight Centre’s conduct could harm competition and ultimately affect the prices available to consumers. If it had been successful in its conduct, Flight Centre’s actions were likely to have meant that consumers would not have seen the benefit of competition through lower ticket prices offered online by the airlines concerned”.

“Pursuing anti-competitive agreements and practices to protect consumers remains one of the ACCC’s enduring enforcement priorities.”

The ACCC would carefully consider the judgment,” Sims said.

Background to the case

The ACCC instituted proceedings against Flight Centre in March 2012, alleging that six times between 2005 and 2009, Flight Centre attempted to enter into arrangements with Singapore Airlines, Malaysian Airlines and Emirates, in relation to international airfares.

Flight Centre has traditionally operated according to a ‘Price Beat Guarantee’, where Flight Centre would beat a cheaper airfare offered by its competitors by AUD 1 plus a AUD 20 voucher.  As a result of the guarantee, Flight Centre was obliged to match the cheaper web fares of its competitors, which is some cases resulted in less revenue for Flight Centre.

The trial took place on 8-12 and 17 October 2012 and judgment was handed down on 6 December 2013.

The penalty judgment was handed down on in March 2014 in which orders were made that Flight Centre pay penalties totalling AUD 11 million.

In April 2014, Flight Centre appealed the liability decision of December 2013, and the penalty imposed in March 2014. The ACCC lodged a cross-appeal in May 2014 arguing that four of the penalties imposed did not provide adequate deterrence given the findings about the nature of the conduct and the size and financial strength of Flight Centre.  The appeal and cross-appeal was heard by the Full Federal Court on 20 November 2014.

Flight Centre Limited changed its name to Flight Centre Travel Group Limited in 2013.

Edited by Peter Needham

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